Economists Doubt It. Researchers Encourage Greater Continental Collaboration.
President Trump defends his tariff-induced trade war to bolster U.S, manufacturing, but does U.S. manufacturing need protection? Or is there a better path to pursue in light of globalization?
Economists generally agree that protectionist policies have an overall negative economic effect, even on manufacturing, which is the intended beneficiary. The McKinley Tariff led to recession and the Smoot-Hawley tariffs deepened the Great Depression. Since then, tariffs have been used selectively to create an even playing field. Even limited tariffs can have a major effect on local economies such as Oregon that are trade dependent.
The unanswered question in Trump’s tariff spree is what manufacturers he seeks to help and which ones he is willing to sacrifice in the process.
The current state of U.S. manufacturing is a subject of sharp debate. U.S. manufacturing employment has declined as overall employment has grown. One explanation is that manufacturing jobs are vanishing because of automation, not globalization. Economists point to high productivity growth that has allowed U.S. manufacturing output to expand as its workforce shrunk.
Susan Houseman, senior economist for the W.E. Upjohn Institute of Employment Research, disagrees. Her research found output growth was far lower and productivity growth was the same or only somewhat higher in most private sector manufacturing. She says most manufacturing growth was in one industry sector – computers and electronics.
“This one industry ends up dominating the manufacturing statistics and gives a misleading impression about what’s going on in the overall sector,” Houseman said.
Trump’s Trade War Targets
Trump launched his trade war claiming Canada and Mexico are ripping off the United States. Despite negotiating an updated free-trade agreement with Canada and Mexico during his first term, Trump now says the United States is unfairly subsidizing industry and jobs in Canada and Mexico.
Annual trade among Canada, Mexico and the United States totaled $1.8 trillion in 2022 and accounted for 17 million jobs across the three countries. According to the U.S. Trade Representative, $789.7 billion was from U.S. exports and $874.3 billion was from imports. The majority of the $55 billion U.S. trade deficit with Canada is from imported oil, not manufactured goods.
The original idea behind NAFTA and the USMCA, which Trump negotiated, was to create a continental free trade zone that protects vulnerable domestic businesses and competes with the European Union and China.
North American Trading Bloc
Brookings argues a North American trading bloc is more important now than ever in the face of Chinese competition that now includes semiconductors, electric vehicles and clean energy. It says the United States under Trump should put pressure on Canada and Mexico to impose investment restrictions and tariffs on China similar to those imposed by the U.S.
“The central issue is that U.S. action to reduce Chinese access to its markets and technologies can be undermined should China increase trade and investment with Mexico and Canada in order to enter the U.S. market while avoiding U.S. trade and investment restrictions,” Brookings says.
A U.S. trade war with Canada and Mexico could produce the opposite result.
Instead of a trade war, Brookings encourages greater integration by the three countries. “Developing a North American EV sector should be the goal for all USMCA parties, leveraging already deep automotive supply chains,” it says. “In 2022, more than 50 percent of Mexico’s imports of parts and accessories for motor vehicles came from the U.S. Accelerating the mining of critical minerals in Canada and Mexico, expanding refining capacity and building battery manufacturing will also be needed.”
Brookings believes closer ties based on shared values will result in better coordination of supply chains, stronger collective economic security and fewer imports manufactured by forced labor.
None of these possibilities appear to be on Trump’s agenda or radar. Instead, he keeps saying he wants Canada to become a U.S. state and threatening to invade Mexico to attack drug cartels.
Oregon’s Manufacturing Sector
The Oregon Office of Economic Analysis told legislators last month, “Oregon manufacturing jobs appear to have stabilized” after dropping in 2023 before a national decline began.” State economists attribute Oregon’s rebounding manufacturing sector to a mix of timber, metals and electronics production.
State economist Carl Riccadonna noted Oregon factory employees are spending more time on the job – 41 hours per week. “We see a big rebound in manufacturing hours worked, which I think should be a harbinger of some improvement for the manufacturing sector,” he said.
Layoffs at high tech companies and delays in plant expansions spurred by CHIPS Act subsidies could suggest an industry breathing spell or perhaps even a retreat. Trump has ballyhooed two major technology investments in the United States, but they won’t materialize and generate jobs for years. Neither investment will be in Oregon or the Pacific Northwest.
Tariffs Complicate Economic Forecast
Tariffs have injected uncertainty into the U.S. economy at almost every sector from agriculture to commerce to manufacturing. Trump’s stridency is even causing foreign tourists to cancel plans to come to the United States.
“Historically, we can see when there were trade tension periods, there were very real implications for Oregon,” Riccadonna told legislators, “more so than for the national economy as a whole.”
Whatever domestic benefits accrue from tariffs over time are offset by real-time impacts on other economic sectors caused by retaliatory tariffs by other nations or consumer displeasure. A major Canadian importer of Kentucky bourbon sent the liquor back.
Economists expect tariffs on Canadian lumber imports will increase the cost of housing construction in Oregon. Canadian retaliatory tariffs could negatively affect Oregon exports of wine, dried hazelnuts and processed potatoes.
The trade war has crept into formalizing a modified Columbia River treaty with Canada that governs water flows and hydropower sharing as Trump has a put a hold on approval.
Trump Tariffs Creating Chaos
A core problem with tariffs is they are an artificial barrier to trade. They create non-economic barriers unrelated to competitive advantage. What tariffs do best is create chaos.
Tariff-generated chaos spooked financial markets. Because tariffs can be lowered or eliminated, they are an unreliable marker to invest in or shift manufacturing operations. And editorial in Le Monde said Trump’s on-and-off-again tariffs “risk creating chronic instability” that isn’t what investors and manufacturers want.
Trump’s first-term tariffs managed to increase, not decrease the U.S. trade deficit. The updated free-trade agreement he negotiated and signed has led to more cross-border economic collaboration on manufacturing sectors such as auto assembly. There was no sign that U.S. manufacturing dipped as a result of the USMCA agreement.
Contrasting Biden Approach
The Commerce Department said 700,000 new manufacturing jobs were created during the Biden presidency in 2024, resulting from $910 billion in private investment. The Economic Development Administration invested $2 billion in 732 projects supporting manufacturing and advanced manufacturing. More than 300 of the projects were dedicating to upskilling workers.
EDA supported Manufacturing Community of Practice, a collaborative effort to amplify and align best practices in manufacturing-focused economic development. In support of 215,000 existing jobs bolstered by $29 billion in private investment. It also invested $504 million in regional technology and innovation hubs to train workers and bring innovations to existing manufacturers.
The CHIPS Act authorized $39 billion to invest in domestic semiconductor research and manufacturing and another $11 billion to strengthen the domestic semiconductor ecosystem. Existing semiconductor manufacturers in Oregon and Southwest Washington received funding for plant expansions.
